Amazon deforestation junkies like myself are having a really exceptional year. I’ve blogged a number of times over the last three years on the deforestation numbers and what drives them, and in particular on the complicated relationship between economic growth and the amount of the Amazon that burns down every year. It’s time for our annual mid-year update on where we are, and this time we have a new variable to throw into the mix – what happens when rules about what farmers and ranchers can deforest get reset?

Brazil’s Forest Code, despite its name, sets out the environmental obligations of farmers and ranchers across the country. By international standards it is extremely advanced, obliging farmers to keep set percentages of their properties in native vegetation and protecting riparian forests, for example. But in other respects it is cumbersome and outdated, and since last year rewriting the Forest Code has been Brazil’s hottest political potato. Currently working its way through the Brazilian legislature, many key issues are undefined and the new Forest Code probably won’t emerge until sometime next year.

Meanwhile, there are clear indications that the 2010-2011 “deforestation year” figures due out in November will show an increase on the previous year; the number and extent of fires is up across the board, a sure sign that 2010-2011 will be a step backwards. The question is how far back, and right now it’s difficult to say.

One thing we can say is that the uncertainty over the Forest Code hasn’t helped. It has muddied the waters on the relationship between deforestation and Brazil’s economy by introducing an element of uncertainty: if ranchers and farmers believed rules were about to be changed, that would affect their deforestation behavior. For example, perhaps the most controversial single proposal in the revised Forest Code is an amnesty for those who deforested above permitted levels in the past. The amnesty may or may not pass – personally I doubt it will – but perceptions on whether an amnesty will pass will certainly have influenced some decisions on whether or not to deforest, thus making it impossible to say whether a rise in deforestation was caused by regulatory uncertainty or economic factors. That in turn makes it much more difficult, at least this year, to draw conclusions about the relationship between economic growth and deforestation. The Holy Grail of combining strong economic growth with low deforestation I talked about in my blog last September won’t happen this year.

But that’s not the end of the story. Some interesting meeting of minds is going on around the idea that it is possible to combine economic growth with low, or lower, deforestation. One initiative that I and others at the Conservancy have been involved with is a recently announced multi-year, multi-million dollar grant that Cargill has given to the Conservancy for its work in Brazil. We know that collaborating with large agribusiness companies is controversial, so we think it’s important to be transparent about why we do, especially somewhere like the Amazon. This project focuses on a highway corridor that leads from Brazil’s biggest soy producing area, in Mato Grosso, to the port of Santarém, on the Amazon River. Over the next few years this will be asphalted along its entire length – the northern sections are currently mainly dirt and impassable in the wet season – and the highway will become an important soy export corridor.

In the past, this has been bad news for the forest. Deforestation levels have jumped as access to the forest improves. But the last major asphalting of a large Amazon highway was a generation ago, and times have changed. There is a deforestation moratorium on soy in the Amazon in place since 2006, monitored by a coalition of environmental groups, including such different animals as the Conservancy and Greenpeace, together with the major soy companies. It implements, and very successfully, a zero deforestation policy on soy producers in the Amazon. As a result, soy has been removed from the table as a driver of deforestation in the Amazon. It has been a model for similar efforts to come up with deforestation initiatives with the beef industry, a much more important driver of deforestation.

We are working with Cargill to help the company develop systems to ensure they buy soy (and other products) only from farmers adhering to the moratorium and whatever other requirements emerge from the revised Forest Code. We are doing it now, before the asphalting happens, to get ahead of the curve. We’ve worked on these systems on a smaller scale with Cargill for years, and have no doubt we can get this done. If we don’t, the deforestation stats will tell us we’ve failed. But if we do, we will have done something fundamentally important: intensified development, increasing output (and incomes) per unit area while leaving the forest intact on the thousands of soy farms we expect to reach.

Cargill is and will be hugely influential in the soy market along the highway – what it does sends a signal both to farmers and other companies Cargill competes with. If you want to influence thousands of farmers, or, putting it another way, work at the large scale necessary to make an impact on deforestation, then a good way to do that is influence Cargill and its competitors. Have them compete not just on price, or volume, but on the quality of their environmental policies and monitoring systems, so that the soy industry as a whole becomes part of the solution, rather than the problem. Since 2006 and the implementation of the Amazon soy moratorium, in the Brazilian Amazon the industry has become part of the solution, and that will be true as long as the moratorium – just renewed for another year – lasts.

So, even if the big picture this year is cloudier than usual, and the November numbers show an increase, we’re not giving up. Combining economic growth with zero deforestation is an ideal, but an ideal we’re working to implement, in the Amazon and elsewhere. In my next post, I’ll look more closely at the Great Forest Code debate, and what it means for Brazil and the world.